Alcatel-Lucent's industry specialist play

John Lively/Ovum
25 Jun 2013
00:00

Alcatel-Lucent CEO Michel Combes said on June 19 that he intends to transition the company from an equipment generalist to an industry specialist, focusing on IP networking and ultra-broadband access.

The move will allow Alcatel-Lucent to better address large cloud and internet providers that are generating a growing portion of bandwidth demand, while continuing to serve its traditional base of telecom service provider customers.

How it plans to get there

The new strategic plan, called “The Shift Plan”, consists of five main elements:

  • Reorganize the business into Core Networks (with all IP-focused products), Access (including managed services and patent licensing), and Other segments.
  • Explicitly and deliberately manage Core Networks for growth and Access (and managed services) for cash.
  • Generate €1 billion in cost savings and another €1 billion via asset sales by 2015.
  • Re-profile €2 billion in debt over the next two years, and reduce debt by another €2 billion after that.
  • Focus 85% of R&D spend on targeted growth segments, and treat patent licensing as a profit center.

Core Networks includes all the IP-related products from the former Networks & Platforms segment, such as IP routers, optical transport, wireless transmission, OSS/BSS, and submarine systems, together with consulting and other services. Core Networks will be managed for growth, with a two-year revenue growth target of 15%, and an operating margin target of 12.5% for 2015.

The new Access segment includes wireless and fixed access products, managed services, and the Bell Labs patent portfolio, which are collectively being managed as a “cash cow” with the goal of generating €250 million or more in cash flow in 2015.

The third and much smaller Other segment includes Enterprise Solutions along with US government-related business.

Alcatel-Lucent is the second full-service telecoms network equipment provider (NEP) to reposition itself as a specialist, following the lead of Nokia Siemens Networks.

These strategy changes show just how quickly market dynamics have changed in telecommunications, which until recently was dominated by the tier-1 telecommunication providers and large western-hemisphere-based suppliers, and is now under siege from internet content providers, Chinese NEPs (Huawei and ZTE), and much smaller niche vendors.

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